JPMorgan taken to congressional woodshed

Top officials at Wall Street giant JPMorgan misled investors, regulators and the public as they maneuvered to mask the size of the more than $6 billion in losses the firm suffered last year when its “London Whale” trades went haywire, a congressional committee charged in a report released Thursday.

The report throws the bank back on the defensive after it spent months trying to downplay the losses and convince investors it had taken care of the problem.

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It also promises to be a headache for all Wall Street banks, adding fuel to the increasingly heated debate over whether Washington needs to move aggressively to crack down, and even shrink, the country’s biggest banks.

“There were many, many failures here by JPMorgan, some of which I believe are serious and indeed egregious,” said Sen. Carl Levin (D-Mich.), who chairs the Senate Permanent Subcommittee on Investigations that released the report Thursday and will hold a hearing on the matter Friday.

Sen. John McCain (R-Ariz.), the panel’s top Republican, said the report is a warning to Wall Street.

“JPMorgan and the banking industry need to know that they’re not too big to fail, they’re not too big to manage and they’re not too big to jail,” he said.

JPMorgan, which cooperated with the investigation, first announced the losses in May and the subcommittee began digging into the details in July.

Jamie Dimon, the bank’s CEO, has testified twice before Congress on the issue and the bank conducted its own internal report, released in January, that found risk practices at the unit in question were not up to snuff.

In a statement Thursday, the bank said it acknowledged mistakes and worked to correct problems, but it made clear it disagrees with the committee’s assertion that there was any intent to mislead.

“Our senior management acted in good faith and never had any intent to mislead anyone,” said a JPMorgan spokesman.

Dimon will not be among the JPMorgan officials testifying Friday, but he takes some hits in the report.

The committee charges that he sought to withhold information — reports on its investment banking activities — sought by its regulator, the Comptroller of the Currency, in early 2012 because he thought it was too much information to share with them.

When the regulator complained and asked that delivery of the reports resume, another top bank official — Douglas Braunstein — complied.
The move irked Dimon.

“At a meeting shortly thereafter in which both Mr. Braunstein and Mr. Dimon were present, according to the OCC, when Mr. Braunstein stated that he had ordered resumption of the reports, Mr. Dimon reportedly raised his voice in anger at Mr. Braunstein,” according to the report.
The 301-page report focuses on the early months of 2012, when the trades started to go awry.

In short, it tells a tale of how a unit created in 2005 to invest the bank’s excess deposits changed into a division driven to find profits — and how, when faced with big losses in early 2012, it took steps to mask the size of these problems in a way that misled the bank’s investors, counterparties and regulators.

Subcommittee staff pored through 90,000 documents, more than 200 phone conversations and instant messages, and conducted over 25 interviews with JPMorgan and regulatory officials.